Houghton facing ‘potentially devastating’ property tax appeal by Walmart

The appeal was originally filed in 2018 but has been put on hold due to different events affecting the county.
Published: Feb. 23, 2023 at 12:37 PM EST|Updated: Feb. 23, 2023 at 6:50 PM EST
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HOUGHTON, Mich. (WLUC) - The City of Houghton announced Thursday that it is facing a potentially devastating property tax appeal by Walmart as the company uses a legal strategy called the “dark store theory” to reduce its tax burden.

The appeal was originally filed in 2018 but has been put on hold due to different events affecting the county.

“We’ve been dealing with this since 2018,” said Houghton City Manager Eric Waara. “Of course, we had the Father’s Day flood, COVID hit, and the case was essentially just put off to the side pending these other issues. In the intervening time, we’ve made settlement overtures to them, which obviously haven’t been acceptable to them, but now they’re requesting the case go to trial this summer, and it is their right to do so.”

According to the city, the global company seeks a lowered valuation on its local store, spurring a six-year retroactive $1.2 million refund and a reduction in future property taxes. If successful, Houghton leaders say these actions would force the town to make difficult budget cuts for critical public services to accommodate reduced future city tax revenues. If Walmart wins the case, it will dramatically reduce future budgets to local K-12 schools, veterans’ services, county medical care facilities, the local library and the City of Houghton.

In addition to a 60% reduction of the community’s property taxes, the City of Houghton says Walmart’s appeal violates a development agreement it made with the city. The city provided Walmart with land and other infrastructure to accommodate its store expansion. In return, Walmart agreed to increase the store’s assessed value to cover these and other ongoing expenses.

The city says the breach of the development agreement makes this case unique and serves as a caution to other local units that have provided financial benefits to Walmart. The City of Houghton has sued Walmart for the breach in federal district court.

On Thursday, community leaders convened in the City of Houghton Council Chamber to discuss the ramifications of Walmart’s appeal and the breach of its development agreement. The city is seeking coordination with the affected local units in what is likely to be a long and expensive litigation.

During the meeting, Waara and the city’s legal counsel laid out the history of the agreement, explained Walmart’s tax avoidance strategy, and prepared stakeholders for the budget cuts.

“Walmart is important to our community, but this doesn’t privilege them from property tax responsibilities,” said Waara in a statement. “Our local Walmart store employs veterans and hard-working parents who rely on city services, so it is disheartening that they are not willing to negotiate a solution to avoid negatively impacting public budgets and services for their customers and employees.”

The city points out that Walmart is the world’s largest corporation by revenue ($543 billion) held by the wealthiest family on the planet. However, the company is using a legal strategy called “dark store theory” to reduce its tax burden and jeopardize services in a small rural community that supports its store. The theory asserts that for tax assessment purposes, an open, bustling store — such as the Walmart property on M-26 highway’s shopping corridor — should be valued at the same rate as older, vacant stores in markets where the retailer no longer operates. Walmart’s goal is to reduce the property’s value and lower its tax responsibility, which will cost taxpayers well over $1 million in lost tax revenue and legal fees.

The lawsuit filed on behalf of the City of Houghton stems from an agreement the city made with Walmart when it expanded the local store in 2004. The city transferred the property to Walmart, created a public roadway, funded the relocation of utilities, and agreed to wetland mitigation work to help accommodate the expansion. In return, Walmart agreed to increase the taxable property value to $4,780,000, which allowed the city to justify these infrastructure investments.

A local task force has been assembled in Houghton to increase public awareness and understanding of the situation and to prepare for potential future property tax reductions. The group includes city leaders, public school administrators, veterans’ service groups, the public library, local economic development experts, and many other community stakeholders. The task force will ensure that the community understands the consequences of Walmart’s desire to mitigate property tax expenses at the cost of vital community services.

“I am very disappointed by Walmart’s actions,” said Anders Hill, superintendent of Houghton-Portage Township Schools, in a statement. “We have limited resources and strive to be responsible with what we have to impact students. Loss of these funds forces us to make some very tough decisions that will not be what is best for kids. Walmart’s actions do not reflect being a partner with our community.”

Waara also encourages the community to inform themselves about this situation as best they can.

“Get a better understanding of this,” he said. “Talk to your neighbors, talk to your legislators about this, we got to fix this. Small communities throughout Michigan are being harmed by this. It’s your police, your fire department, your schools, your libraries. Those are the ones that are affected by this.”

The task force and the City of Houghton said they hope their efforts encourage Walmart to respond to numerous settlement overtures and salvage a relationship that has benefited both Walmart and the people of the community.

A Walmart spokesperson says the retailer stands by its appeal.

“Walmart is committed to the Houghton community, and it is home to many of our associates and customers,” Walmart Corporate Affairs Director Marci Burks said, in a statement. “Walmart is a responsible taxpayer, and like any property owner, we believe our property should be valued just like everyone else’s. When we get a property tax bill, it should reflect the value of the land, brick, and mortar rather than the value of our business operations.”